Is the ETI applicable where the employee’s income is below the tax threshold?
19 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: An employee
earns less than the income tax threshold amount and is therefore not subject to
PAYE. How then can the employer earn the employment tax incentive when there is
no PAYE to be paid? I thought that the ETI is deducted from the PAYE due?
A: Here’s the
draft SARS guide to the ETI Act.
Note point 6 (especially 6.1) titled "Process for claiming
The relevant portions read:
"The practical implementation of the ETI is done by means of
a reduction in the employees’ tax that an employer must pay over to SARS every
month. The employer’s total employees’ tax liability for the month is simply
reduced by the total ETI that the employer qualifies for during that month.”
"The ETI does not
affect the remuneration received by the employee, or the employees’ tax
deducted from that employee. The employees’ tax certificate (IRP5) that the
qualifying employee is entitled to receive must disclose the total
remuneration, as well as the total employees’ tax deducted or withheld,
disregarding the ETI.”
This is in line with section 2(2) of the ETI Act:
"If an employer is eligible to receive the employment tax
incentive in respect of a qualifying employee in respect of a month, that
employer may reduce the employees’ tax payable by that employer in an amount
determined in terms of section 7 or receive payment of an amount contemplated
in section 10(2), unless section 8 applies.”
ETI is deducted from total PAYE that is payable by the
employer. It is not deducted from a particular employee’s PAYE.
To the extent that the total ETI claimable exceeds the total
PAYE payable, a refund is payable by SARS to the employer per section 10 of the
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